The full-bench decision by 13 justices, including Chief Justice Kim Meong-su comes after the Constitutional Court's June 28 ruling that recognized for the first time the need for alternative service for conscientious objectors.
The top court ordered an appellate court to retry the case of the 34-year-old defendant, surnamed Oh, effectively stating that he should be cleared of the conviction.
"Punishing (conscientious objectors) for refusing the conscription on grounds of religious faith, in others words, freedom of conscience, is deemed an excessive constraint to an individual's freedom of conscience and poses a risk to fundamental elements," the court ruled.
Oh has been sentenced to 18 months in prison for refusing to do his military duty, which applies to all able-bodied men in the country. He has argued he is a Jehovah's Witnesses believer and serving in the Army is against his religious faith.
Thursday's ruling will likely affect 227 other similar cases pending at the top court. The lower trial courts have increasingly handed down not-guilty verdicts for conscientious objectors since the first ruling in 2016.
The current Military Service Act stipulates that objectors face up to three years in prison. Since the 1950s, about 19,000 conscientious objectors have been arrested and served time, mostly 18 months in jail.
In all three past hearings, the top court ruled in favor of the law and found the defendant guilty. The court had cited that military obligation takes precedence over individual freedom of conscience, as the two Koreas are technically at war, since the 1950-53 Korean War ended in a truce and not a peace treaty.
Public hearings have been held on the issue since the latest Constitutional Court's ruling. Experts and lawmakers are leaning towards the idea of working at public institutions such as state prisons or fire stations for twice longer the term.